The Minister for Defence Readiness and Industry has told the House of Commons that reforms to Single Source Contract Regulations will link supplier profits directly to delivery performance, in what he described as a fundamental shift in how the government uses commercial tools to drive supplier behaviour, the UK Defence Journal understands.
Luke Pollard, making a written statement to Parliament on 14 May, said the changes were necessary given the state of defence procurement inherited by the current government. “The House will be aware that we inherited forces that were hollowed out and underfunded — 47 of 49 major defence programmes were over budget and delayed when we took office,” he said, adding that business as usual was not an option at a time when whoever gets new technology to the frontline first wins.
The first tranche of legislation laid before Parliament increases the maximum incentive profit available to suppliers who meet priority outcomes such as faster delivery or greater productivity, rising from 2% to 10% of costs. Pollard stated that the government would be “expecting exceptional performance in return for the higher rate of incentive profit,” with the size and structure of any incentive fee remaining at the government’s discretion within statutory constraints.
Profit floors on lower-risk contracts will be reduced, with Pollard stating this will “powerfully incentivise suppliers to become more productive or to deliver other Government priorities, in order to restore profits to current levels.” The measure is also intended to motivate suppliers to take on more risk-bearing contracts, a commitment made in the Defence Industrial Strategy.
The threshold at which contracts fall under the regulations will rise from £5 million to £25 million, removing nearly all small and medium-sized enterprises from the regime. Pollard said small and novel products had “often delivered the greatest successes” and that lifting the regulatory burden on smaller firms was essential to maximising results from that part of the supply chain. An Innovation Uplift will also be introduced to reward firms that invest their own money in developing products without a guaranteed contract or upfront government funding.
The Single Source Contract Regulations govern contracts placed without competitive tender and account for around half of defence spending on equipment. A further statutory instrument covering the profit floor changes, the Innovation Uplift, and the increased threshold will be introduced before the summer recess.
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How about paying people promptly? I’ve contacted with the MOD in the past for two jobs. It takes them 3/4 months to do what a private company can do in a week.
In my personal experience Geoff the bigger they are the slower they pay
I thought they recently cracked down on slower payments in Govt departments
The bigger the organisation the slower and more arthritic they are in everything Smaller nimble head offices get better results
I think i had read recently that the MOD is bigger than some of the services
You’re not wrong. I’ve dealt with many a council and they seem to be okay strngely enough but otherwise the public sector are painfully slow. Not just payign. It’s having all the meetings to decide on a decsision sometime never. I think the MOD has about 60,000 personnel. The army is 70/75,000 and the RN/RAF combined about the same. So yes, bearing in mind that the private sector is responsible for the desisgn build on the vast majority of programmes, we have around one civil servant for every two service people.
I should have been clearer I was referring to the civillian part especially those who sit behind desks or is it working from home
It seems that the bureaucrats have been increasing by many thousands per year whilst the sharp end contracts
No problem. Thanks for the post.
I’ll give them £10 if they can publish the D.I. Bloody P quicker.
Was it Starmer who said that The DIP was being worked on at pace!
The speed of a snail
A survey of MOD CS a decade ago found
10% have no identifiable job
50% spend their day writing guff to justify their existence
40% produce a quantifiable output
I hate waste of our money
So by that estimation there is a 10% automatic saving by culling the CS lot doing nowt
40% of the jobsworths doing ? Lots to save there
I would love to know how much would be saved £100’s of millions which would fund the sharp end of our defence
Also on a more general sense there is a culture in the civil service which is appalling
Since Covid they don’t want to go back to the office and work from home
Certain Govt departments are a joke HMRC DVLA to name a couple
Probably the biggest is the bureaucratic NHS part
Just Me, thats astonishing. Do you know where I could find that report? I worked with MoD CS in Andover (two postings; 1997-98 and 2000-2002) and Abbey Wood (2009-2011) and met none that did not have a proper job.
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Government trying to obtain some kind of leverage over [independent] defence companies. Defence companies want to, and currently do operate using a “Technology push” system. Government as a consumer wants defence companies to move to “Market pull” system.
“In a pull system, production is triggered by actual demands for finished products, while in a push system, production is initiated independently of demands”
“A pull system is one that explicitly limits the amount of WIP (works in progress that can be in the system, while a push system has no explicit limit on the amount of WIP that can be in the system.”
Pull system is great from a consumer perspective, because somebody is running round trying to satisfy your specific demands. But it’s not so good from a supplier’s perspective, who want to ultimately ‘just push product’.
Perfectly reasonable approach. It’s insane that defence companies make massive profits from overrunning projects or to be fair return on investment figures. MOD no doubt has all sorts of issues but massive profits well above other industries is not normal.
We keep hearing about defence firms writing off losses etc but magically they make profit and those right downs become unrealised profits in the coming years. As an investor in defence companies it’s great, but as a tax payer it is insane.
Whatever happened to penalising suppliers for late delivery? That way money flows into MoD coffers rather than out (for an incentive scheme). Rachel would approve!